Performance measurement is used by various organizations to achieve their strategic goals. It is usually performed in the framework of day-to-day activities. The performance is extremely significant for the company as it enhances its competitive ability. That is why it should be based on the critical points of the organization that is likely to cause problems currently or in future during the process of development.
In the historical perspective the performance measurement and management dealt with “the evolution from traditional approaches based on the measurement of financial standards – profit, profitability, cash flow approaches to modern measurement value for the owners and shareholders” (Milichovsky and Hornungova 191).
It is claimed that the performance measures influence “organizational structure, level of competition, the size of the company, and business strategy on the use of performance measures” (Fakhri 46). Mentioned areas are crucial for every organization, and they are constantly changing to adapt to the needs of the time. Thus, performance measures do not stay the same with the course of time. To prove this, the authoritative literature relevant to the topic will be evaluated.
The evolution of performance measurement process is necessary for the success of the organization as it helps to make decisions that can improve the state of it (Fakhri, Menacere and Pegum 6). The demands of the customers alter very often especially in the developing countries, and this will greatly help to meet them.
Unfortunately, according to the research, almost 60 percent of the interviewees believe that the performance management approach they have today does not drive employee engagement and high performance (Buckingham and Goodall 40). However, it was not always so.
Starting with the 1960’s the performance management system entered the sphere of industry. At that time, it was concentrated on “financial measures such as traditional budgeting, costing, and variances analysis and cost volume profit” (Bourne et al. 2). Thus, it mostly dealt with the monitoring of the spending. Today such approach does not work properly. The nature of business has altered and shifted the focus of this system from the competitors of the organizations to their customers. If the company wants to be successful, it needs to provide the consumers with the products and services of the high quality. The more clients are satisfied, the more profit the organizations gain. Moreover, due to the globalization, the competitors within one area can be located anywhere. It is easier for companies to supply the costumers with what they need than to concentrate on every opponent. The traditional approach does not extend to long-term strategies and is claimed to have several shortcomings, which were recently improved.
At the beginning of the 21st century, the search for the most advantageous performance measurement system started. Various new systems were proposed to make the measurement of all aspects of business possible. Previously such aspects of reporting as “competence and knowledge, customer focus, and operational efficiency and innovation” were not identified (Zizlavsky 78). However, today they are of high value, and it was decided that the new system is to include both financial and non-financial measures. Soon a balanced scorecard was practiced within integrated performance measurement system. Thus, the focus is on the costs as it was in the framework of traditional approach and on the customer satisfaction, efficiency of the staff and the quality of the products and services. This mixture enhances the profit of the organization and makes it more popular among the clients.
Among the well-known systems are strategic measurement analysis and reporting technique, balanced scorecard, consistent performance measurement systems, dynamic performance measurement system and integrated performance measurement framework. Still, each of them has its pros and cons, which proves that the creation of new concepts in the field has not finished yet.
The strategic measurement analysis and reporting technique performance pyramid used to be commonly used. Its aim is to “connect the organization’s strategy with its operations, by translating objectives from the top down and measures from the bottom up” (Buckingham and Goodall 45). The model includes such levels: corporate view, financial goals, day-to-day operation measures and performance measures.
The integrated performance measurement framework is thought to be a decent example of the system for manufacturing organizations. It encourages to define what can bring success to the company and to decide what can be made to enhance them taking into account competitive priorities. Then the measures that are used by the firm can be collated with strategic ones to see which ones are to be implemented. Of course, this system is to be used several times to be current.
More recent dynamic multi-dimensional performance framework is aimed to include the dimensions that were not mentioned earlier. It focuses on the long-term goals and creates strategies to achieve them. The emphasis on the environment and the staff is reduced (but not excepted). The quality and time needed for the delivery of services or products are underlined. It is claimed that they bring the customer satisfaction, which influences the profit of the company positively. Deep strategic planning allows the organization to predict the future changes and get prepared. Some variations are possible within this approach. For example, different dimensions can be emphasized depending on the business peculiarities. Thus, some organizations may stick to the current one while others focus on the future.
Due to the technical progress, the HR developed and became the primary business driver. On this basis, the focus of performance management “shifted to employee development and growth to underpin sustainable business outcomes” (Bourne et al. 5). Today the competencies of the staff are formed internally, which proves the importance of the employee motivation. To achieve success in the performance management, one needs to emphasize the clarification of the performance expectation and their feedback.
Thus, the process of evolution of performance management deals with the issue in four main perspectives throughout the history:
- Customer perspective. It is the step towards the improvement of the performance management system according to which the main focus is on the consumer. It is considered how the company wants to be seen by its clients and how it is actually seen.
- Financial perspective. It occurs to be the first one. Performance management is said to focus on the costs and evaluate the way the company is perceived be the opponents.
- Internal process perspective. It is aimed at the creation of the long-term strategies. The company decides what should be achieved and integrates these targets in the working process.
- Innovation and learning perspective. This perspective is the most current. It occurred due to the rapid development in various spheres and the wish of organizations to be interesting for their clients as long as possible. It is considered what can be improved to create value.
Generally, the difference in the performance management of the 20th and 21st centuries lies in the primary focus (financial – financial/non-financial) and key developments (accounting earnings and unit costs; earning per share and joined budgets; ROI – balanced scorecard; economic value and activity-based costing).
Works Cited
Bourne, Mike, Andy Needly, John Mills and Ken Platts. “Implementing Performance Measurement Systems: A Literature Review.” International Journal of Business Performance Management 5.5 (2010): 1-24. Print.
Buckingham, Marcus and Ashley Goodall. “Reinventing Performance Management.” Harvard Business Review 5.2 (2015): 40-50. Print.
Fakhri, Gumma. “The Impact of Contingent Factors on the Use of Performance Measurement System in the Banking Industry in Developing Countries.” Journal of Performance Management 24.2 (2012): 45-67. Print.
Fakhri, Gumma, Karim Menacere and Roger Pegum. “Organizational Specificities That Affect the Use of Corporate Performance Measurements Process in the Banking Sector.” Journal of Performance Management 23.3 (2011): 5-17. Print.
Milichovsky, Frantisek and Jana Hornungova. “Methodology for the Selection of Financial Indicators in the Area of Information and Communication Activities.” Business: Theory and Practice 14.2 (2013): 191-208. Print.
Zizlavsky, Ondrej. “The Balanced Scorecard: Innovative Performance Measurement and Management Control System.” Journal of Technology Management & Innovation 9.3 (2013): 77-108. Print.